China is already a great power, and is on the way to becoming an even greater one. For 125 nations including Australia, China is already their biggest trading partner.
Its wealth is translating into military might, too. In its annual military parade though Beijing in September, China proudly displayed its potentially game-changing new missile for the first time.
The so-called "carrier killer", with its claimed ability to strike US aircraft carriers at a range of up to 1550km, was clearly painted "DF21-D" on its side – in English lettering, just to make sure the world noticed.
The unresolved question, though, is how this increasingly powerful China will behave toward its neighbours. Will it use peaceful methods to solve disagreements? Or will it be prepared to use force to get its way? This was the big question posed to a group of senior Chinese delegates last Friday behind closed doors in a room on Sydney Harbour. The responses were not all reassuring.
The good news is that the 18 Chinese delegates to the annual Australia-China High-Level Dialogue were very upbeat on relations with Australia. And there was general rhetorical support for peaceful approaches to settling disputes.
The bad news is that they kept alive the option of the use of force to settle the most sensitive neighbourhood disputes, the ones that China designates "core interests". It was a disturbing signal to an anxious region. The "core interests" long included Taiwan and Tibet. In 2010 Beijing added to the list the South China Sea, where China's claims overlap with those of five other countries.
Beijing considers its "core interests" to be non-negotiable red lines where it has always kept open the option of armed force to protect its claims.
In the dialogue last week, a Chinese representative compared Beijing's claims in the South China Sea to Australia's claim to the city of Darwin. In other words, automatic and indisputable. The differences, of course, are that Darwin is on the Australian mainland, and that no other nation lays claim to it.
The shipping lanes through the South China Sea constitute the world's most valuable trading route. They hold a vital interest for Australia – some two-thirds of Australian exports travel through the sea.
The dialogue is a government-run event that brings together officials of both countries as well as business chiefs, cultural leaders, academics and journalists. Of the 18 Chinese, six were current or former officials of ambassador rank or above.
I was one of the journalists from the Australia side, and the Chatham House rule applies; I am permitted to tell you what was said in the meeting, but not to identify who said it.
Both countries were upbeat in their assessments of bilateral relations. It was, indeed, a year of major developments. The China-Australia free trade agreement has been signed and is due to take effect next month. This year has also seen the first joint naval exercises between the two countries. It was a year of "an unprecedented level of co-operation", said a Chinese participant, and surely he is right.
An Australian speaker set out clearly the big question that every capital in the region is asking about China and the future of the Asia-Pacific: "What kind of strategic culture is the lodestone for the future – will it be based on international law and norms, or the rule of power?"
It was, he said, the fundamental question for all, and the South China Sea was a test case.
"The perception of China's peaceful rise has been put into question" by its land reclamations and militarisation of atolls and islands in the South China Sea. The consequences of mismanagement of these disputes could be "profound", he said.
He, like another Australian speaker, urged that China demonstrate its goodwill towards its neighbours by concluding a code of conduct with the countries 10 of ASEAN. This group includes all the rival claimants to the South China Sea except for Taiwan.
China and ASEAN declared their intent to agree to such a code in 2002. But since then little has happened. Beijing has refused to negotiate with ASEAN as a bloc. It insists on negotiations with each of the ASEAN countries separately. This, of course, gives China preponderance in each one-on-one.
With negotiations going nowhere, China has moved to change the facts on the ground with its island-building program, defying its neighbours to stop it.
But the Chinese response to this suggestion was one of nationalistic indignation. A Chinese delegate said that Vietnam and the Philippines were the first to assert unilateral claims to islands in the South China Sea. Vietnam illegally occupies 29 islands and the Philippines 14, he said, while China has occupied seven. "Unilateral assertion was begun not by China but by other claimants."
He was backed up by another Chinese delegate who said that China was the country which had paid a toll in the South China Sea, suffering from the illegal actions of others. Implicitly, it was now China's turn to assert itself as it wished.
An Australian asked the Chinese to return to the question of principles that should apply – did China support unilateral assertion, or peaceful negotiation? And if Beijing supported unilateral assertion, how did it expect the other countries of the region to respond? The answer brought more heat than light.
If China's answer is that the region's future is to be decided by "the rule of power", other countries will continue to respond as they have begun – by continuing a military build-up as they seek to strengthen their bargaining positions for a future decided by brute force.
Peter Hartcher is international editor Sydney Morning Herald Illustration: John Shakespeare
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